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The Court of Appeal has paved the way for terrorism suspects to sue after ruling their control orders unlawful.

The men, who cannot be named, have fought a two-year legal battle over the house-arrest style restrictions.

The home secretary argued that the control orders had been legally imposed, even though they were later withdrawn.

The government says it will appeal to the Supreme Court, but judges refused to grant automatic permission to do so.

The two men in the case, AE and AF, were ordered to live under home curfews and subjected to other restrictions on their liberties over the course of more than three years.

AE, an Iraqi Kurd, was accused of being linked to the al-Qaeda backed insurgency in the country. AF, a British-Libyan man, was accused of links to other Islamist extremists.

Last year, the UK's top judges said that the home secretary had to provide the men with more information about the allegations against them so that they could defend themselves in court.

But in both cases, the home secretary refused to detail the secret intelligence against the men, amid attempts to protect the workings of counter-terrorism officers and MI5.

The High Court, against the wishes of the home secretary, then quashed the control orders. It said that the restrictions were legally flawed because the government had not met the requirements for more open evidence.

The Court of Appeal has now upheld that decision, meaning the men can sue for damages. Judges have already warned the men that they should not expect to receive a major pay-out if they eventually win.

In a statement issued through his solicitor, AE said that he would press ahead with this claim.

"My life has been on hold since the imposition of the control order in May 2006 and will continue to be until these proceedings are concluded," he said.

"I am very upset that I have been labelled a terrorist suspect without a shred of evidence ever having been disclosed against me by the secretary of state.

"I have always maintained my innocence and deplore those who engage in terrorist activities. I feel the control order not only punished me for something I have never done but also my family was equally affected."

The Court of Appeal has refused to allow the government to automatically take the case to the Supreme Court - but a spokesman for the 91�ȱ� Office said it would petition the judges to have the case heard.

That means ministers will write directly to Supreme Court justices, who must then consider whether the case involves a crucial legal point requiring their intervention.

The 91�ȱ� Office spokesman said: "We will resist strongly paying damages to former subjects of control orders wherever possible, and to minimise the level of compensation where we have no choice but to pay.

"We have already made clear our intention to review the control order system while taking whatever steps necessary to protect the public.

"That work is underway as part of the review of counter-terrorism legislation."